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Wed, Feb 27, 2008

Stocks Fall On Stalled Delta-Northwest Merger

Delay Leads To Lower Share Prices

We're now seeing one reason Delta and Northwest felt some urgency to get a merger done once the rumors started. Both airlines have seen their stock prices hit this week after unions have hinted they'll balk at combining the workforces.

"People are getting a little nervous about a potential merger," Calyon Securities analyst Ray Neidl told Reuters. "The longer this thing drags out the less likely it's going to happen this year."

The economic factors driving the merger include the perceived need within the US airline industry to eliminate duplication in routes and services to counter rising fuel prices. The way to save money in a merger is to consolidate lightly-traveled routes, and eliminate job positions, and there's no getting around it -- that means fewer employees.

Reuters says Delta and Northwest have told employees they want to grow the airline, not cut jobs. The unions aren't buying it.

Early reports that both groups of pilots had agreed to a new seniority system for combining workforces proved premature... and David Stempler, president of the Air Travelers Association, isn't surprised. "Whoever thought that airline pilots would agree on something as important as seniority integration in a short period of time was quite mistaken," he said.

Now, the International Association of Machinists, which represents over 12,000 bag handlers, customer service representatives and reservation agents at Northwest, said a merger will mean substantial job losses and service cuts. The union says it will oppose any big airline mergers, including Northwest and Delta.

Analysts say a merger needs to start soon, or it may not happen at all this year.

FMI: www.delta.com, www.nwa.com

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